Thursday, October 1, 2009

A global arms bank as deterrence?

One of the most encouraging trends of the past few decades has been the remarkable decline in the incidence of wars between nation states, especially in comparison to even recent history. However, wars have been replaced with psychological battles of brinkmanship between nation states, resulting in the emergence of a new dimension to the relationship between nations - mutual deterrence. Such deterrence strategies too involve the same massive expenditures on procurement of sophisticated and hugely expensive weaponry as was the case with wars.

The only difference from the earlier era is that instead of using these weapons to actually fighting wars, weapons are now used to deter enemy nation states from any adventurism. In other words, weapons become a hedge against invasion.

In a world where financial market engineering concocts complex products to diversify and hedge against all kinds of risks, it may be appropriate to borrow some of those principles to design a market for achieving mutual deterrence in a more cost-effective manner. SO how about setting up a global arms bank. Here is how it will work.

This arms bank can be a depository of all kinds of weaponry. It can sell customized option products that enable nation states to purchase the right to own specific category of weapons. Like financial options, such options give purchasers the option, but not the obligation, to purchase the weapon products. The terms of delivery, of great importance in case of actual war breaking out, can be formulated in accordance with the requirements of the client. This would mean positioning arms at multiple arms depots, located at different locations across the globe. While this is likely to raise many problems, technological solutions can help overcome most of them.

Membership of this bank should be restricted to nation states, who can purchase the membership (for an annual fee) and buy options of their choice. Taking the model one step further, the arms bank itself can enter into forward contracts with weapons producers, so as to optimize on its own costs. Taking a leaf out of the Swiss banking model, all transactions (and even membership) in this global arms bank can be kept confidential. Since deterrence works by way of increasing the information asymmetry between antagonists, such secrecy will only enhance mutual deterrence.

Such an arms bank would help nation states avoid the massive and wasteful expenditures on amassing weapons to achieve deterrence against their enemies. It would ensure that nations do not spend huge resources to merely stock on weapons it is never likely to use. An arms bank like that envisioned above can be a global public good, in so far as it would help nation states avoid arms spending and divert resources towards development and welfare. Accordingly, a multilateral agency (similar to say, the IAEA) with equal stake for all member nations should administer the bank.

This proposal is never going to work to perfection. For a start, with a few initial credibility creating steps (or confidence building measures, CBMs) it will surely encourage some nations to cut back on their purchases and instead buy options from the bank. A global ban on arms trade will also go a long way in catalysing the development of this arms bank.